August 18, 2010

Energy Efficiency Standards for Pool Heaters and Direct Heating Equipment and Water Heaters

Proposed Rule
Summary

Score: 40 / 60

Key materials
Additional details
Agency
Department of Energy
Regulatory Identification Number
1904-AA90
Agency Name
Department of Energy
Rule Publication Date
12/11/2009
Comment Closing Date
02/09/2010

RULE SUMMARY

The Energy Policy and Conservation Act (EPCA) prescribes energy conservation standards for various consumer products and commercial and industrial equipment, including residential water heaters, direct heating equipment (DHE), and pool heaters. EPCA also requires the U.S. Department of Energy (DOE) to determine whether more stringent, amended standards for these products would be technologically feasible and economically justified, and would save a significant amount of energy. In this notice, DOE is proposing amended energy conservation standards for residential water heaters (other than tabletop and electric instantaneous models), gas-fired DHE, and gas-fired pool heaters. DOE also is announcing a public meeting to receive comment on these proposed standards and associated analyses and results.

Visit the Department of Energy's website to view the Regulatory Impact Analysis associated with this proposed rule.

METHODOLOGY

There are twelve criteria within our evaluation within three broad categories: Openness, Analysis and Use. For each criterion, the evaluators assign a score ranging from 0 (no useful content) to 5 (comprehensive analysis with potential best practices). Thus, each analysis has the opportunity to earn between 0 and 60 points.

Criterion Score

Openness

1. How easily were the RIA , the proposed rule, and any supplementary materials found online?
This regulation is easily findable by searching the RIN on regulations.gov. It can also be found by using a search engine like Google and typing in DOE and the regulation name. The RIA section says the full RIA is in the Technical Support Document (TSD), but it does not say where to get this document. One can find the TSD by clicking on a link provided earlier in the Federal Register notice, but the notice says only that the link leads to spreadsheets used in the analysis. So it is not very clearly labeled.
3/5
2. How verifiable are the data used in the analysis?
Most data sources are cited and most of these are linked. There are extensive data appendices.
4/5
3. How verifiable are the models and assumptions used in the analysis?
Many assumptions are based on peer-reviewed literature that is cited but not usually linked. In the technical support documents, sources justifying some assumptions are cited and linked, but judgment calls are not. Spreadsheets used for calculations are publicly available.
4/5
4. Was the analysis comprehensible to an informed layperson?
The section of the preamble called the RIA summarizes the results well, with some jargon and unintuitive acronyms. Tables here and in the TSD summarize many model inputs and results. The setup of the analysis, which compares costs to businesses with "net present value" to consumers, is a somewhat confusing way to present comparison of costs with benefits, especially since the rationale for large and positive private benefits to consumers is not explained very well.
3/5

Analysis

5. How well does the analysis identify the desired outcomes and demonstrate that the regulation will achieve them?
4/5
Does the analysis clearly identify ultimate outcomes that affect citizens’ quality of life?
Reduced energy use, consumer cost savings, and reduced pollutant emissions.
5/5
Does the analysis identify how these outcomes are to be measured?
All three are quantified and monetized.
5/5
Does the analysis provide a coherent and testable theory showing how the regulation will produce the desired outcomes?
It assumes compliance will lead to the outcomes. Precisely why government action can give consumers savings that consumers themselves do not bother to capture is not really explained.
2/5
Does the analysis present credible empirical support for the theory?
For the chosen option, the analysis assumes 100 percent compliance will occur and produce the estimated benefits. For the non-regulatory options, the size of the effect is often estimated based on experience with similar programs. Calculations of energy savings are based on energy use data for various appliances, so assuming compliance occurs, it is plausible that energy savings will result.
3/5
Does the analysis adequately assess uncertainty about the outcomes?
The analysis acknowledges uncertainty about the social cost of carbon and addresses this by using a range of values, from $1-$56/ton. It explicitly assumes that federal regulations will meet with full compliance and produce the expected outcomes. Monte Carlo analysis is used in estimation of consumer benefits.
4/5
6. How well does the analysis identify and demonstrate the existence of a market failure or other systemic problem the regulation is supposed to solve?
2/5
Does the analysis identify a market failure or other systemic problem?
The RIA section asserts three market failures: lack of consumer information or information processing capability about energy savings, asymmetric information, and externalities related to energy consumption. Each is discussed in one paragraph with no further elaboration.
3/5
Does the analysis outline a coherent and testable theory that explains why the problem (associated with the outcome above) is systemic rather than anecdotal?
The analysis only names the three market failures.
1/5
Does the analysis present credible empirical support for the theory?
No empirical support is presented for the first two market failures. The presentation of calculated values of the social cost of carbon could be taken as an indication that the environmental market failure is real, but this information is not linked to the market-failure discussion.
1/5
Does the analysis adequately assess uncertainty about the existence or size of the problem?
The problem and its size are almost always assumed with certainty to exist. The main exception is the use of ranges of estimates of the social cost of carbon, which could be taken as an acknowledgement of uncertainty about the size of the environmental externality problem. This regulation and RIA present an excellent example of how an agency can reach paradoxical results and ignore possible alternative solutions if it doesn't do the market failure analysis carefully.
1/5
7. How well does the analysis assess the effectiveness of alternative approaches?
4/5
Does the analysis enumerate other alternatives to address the problem?
It identifies no action, the chosen alternative, plus six non-regulatory alternatives: consumer tax credits, consumer rebates, manufacturer rebates, voluntary standards, early replacement, and bulk government purchases. DOE also considers standards of varying stringency.
5/5
Is the range of alternatives considered narrow (e.g., some exemptions to a regulation) or broad (e.g., performance-based regulation vs. command and control, market mechanisms, nonbinding guidance, information disclosure, addressing any government failures that caused the original problem)?
This is a creative and wide-ranging list of alternatives for inducing customers to purchase washing machines that meet the proposed standards. However, it does not consider other means of accomplishing the environmental outcomes that don't involve inducing customers to buy washing machines that meet the standards.
5/5
Does the analysis evaluate how alternative approaches would affect the amount of the outcome achieved?
The analysis estimates effects on net present value of consumer cost savings, employment, emissions, etc. of alternative standards.
4/5
Does the analysis adequately address the baseline? That is, what the state of the world is likely to be in the absence of federal intervention not just now but in the future?
The baseline assumes no new energy savings in the absence of government action.
1/5
8. How well does the analysis assess costs and benefits?
4/5
Does the analysis identify and quantify incremental costs of all alternatives considered?
It appears to include a pretty comprehensive consideration of costs. Consumer and producer costs are considered for alternative standard levels.
4/5
Does the analysis identify all expenditures likely to arise as a result of the regulation?
Expenditures by firms and increased product prices are both calculated.
4/5
Does the analysis identify how the regulation would likely affect the prices of goods and services?
Increased product prices are calculated. It includes an analysis of expected changes in gas prices due to lower consumption.
4/5
Does the analysis examine costs that stem from changes in human behavior as consumers and producers respond to the regulation?
DOE includes the rebound effect in its calculations where it believes the evidence justified that. The preamble mentions many other behavioral issues raised by commenters (eg, substitution of non-regulated heaters), but the analysis does not seem to explicitly consider these.
2/5
If costs are uncertain, does the analysis present a range of estimates and/or perform a sensitivity analysis?
Life-cycle costs and payback period are modeled using Monte Carlo analysis.
4/5
Does the analysis identify the alternative that maximizes net benefits?
The analysis calculates life-cycle cost savings for standards of different stringency, which is the equivalent of calculating net private benefits and costs. It also calculates net social costs and benefits. But the reader really has to work to figure out that this is what the analysis does.
4/5
Does the analysis identify the cost-effectiveness of each alternative considered?
No, but this could be calculated from the results.
2/5
Does the analysis identify all parties who would bear costs and assess the incidence of costs?
A table shows the percentage of households with net costs, no effect, and net benefits. Analysis assesses effects on employment. Regulatory flexibility analysis calculates costs for small vs. large manufacturers.
5/5
Does the analysis identify all parties who would receive benefits and assess the incidence of benefits?
Consumer cost savings and payback periods are calculated for different types of heaters. For some products, effects are calculated for specific consumer subgroups, such as low-income, elderly, multifamily housing, and mobile homes. Incidence of environmental benefits is not estimated.
4/5

Use

9. Does the proposed rule or the RIA present evidence that the agency used the analysis?
DOE says it is considering higher standards but tentatively concludes that they might not produce the estimated benefits and might also produce other undesirable effects. A separate RIA section of the technical support document assesses benefits of alternative approaches and concludes the mandatory standards are the most effective method to achieve the goal. A complicated but helpful graphic in chapter 2 of the technical support document explains how different parts of the analysis are supposed to produce specific types of information and/or affect the decisions. The decisions appear to be driven by the calculations.
4/5
10. Did the agency maximize net benefits or explain why it chose another alternative?
Legal standard: the new standards must achieve the maximum energy savings that are economically justified and technologically feasible. DOE believes these standards are the highest that meet this requirement. The agency indicated that other alternatives would have been less costly, but none would have achieve the maximum energy efficiency goals which the legislation compels it to choose. The preamble contains a detailed discussion of how DOE used the results of the analysis to choose the standard.
5/5
11. Does the proposed rule establish measures and goals that can be used to track the regulation's results in the future?
No, but the benefit measures in the RIA could be used to set goals and measures.
1/5
12. Did the agency indicate what data it will use to assess the regulation's performance in the future and establish provisions for doing so?
No. Data on actual sales of products, energy use, etc. could be used to calculate ex post results, following the methods ued in the RIA.
2/5
 
Total 40 / 60